Comptroller of Treasury v. Maryland State Bar Ass'n, Inc.

• Decision Date: 01 September 1988
• Docket Number: No. 16,16
• Citation: 314 Md. 655,552 A.2d 1268
• Parties: COMPTROLLER OF THE TREASURY v. MARYLAND STATE BAR ASSOCIATION, INC. ,
• Court: Maryland Court of Appeals

Page 655

314 Md. 655

552 A.2d 1268

COMPTROLLER OF THE TREASURY v. MARYLAND STATE BAR ASSOCIATION, INC.

No. 16, Sept. Term, 1988.

Court of Appeals of Maryland.

Feb. 8, 1989.

Deborah B. Bacharach, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., Linda Koerber Boyd, Asst. Atty. Gen., Gaylin Soponis, Asst. Atty. Gen., all on brief), Baltimore, for petitioner.

T. Scott Basik (Cleaveland D. Miller, Semmes, Bowen & Semmes, on brief), Baltimore, for respondent.

Argued before MURPHY, C.J., ELDRIDGE, COLE, McAULIFFE, ADKINS, BLACKWELL, JJ., and RICHARD P. GILBERT, specially assigned.

MURPHY, Chief Judge.

Maryland Code (1957, 1980 Repl.Vol.) Art. 81, § 326(i) provides an exemption from the State's sales tax for purchases of tangible personal property made "for use in carrying on the work" of a "nonprofit religious, charitable, or educational institution or organization." This case arises from the Maryland Tax Court's decision to discontinue the sales tax exemption which the Maryland State Bar Association previously enjoyed under § 326(i). ¹

I.

The Maryland State Bar Association, Inc. (MSBA) is a nonprofit corporation organized, according to its charter, for the purposes of advancing the science of jurisprudence, promoting reform in the law, facilitating the administration of justice, upholding the standard of integrity, honor and courtesy in the legal profession, and encouraging legal education. The MSBA is comprised of members of the bar and judiciary who have been admitted to the practice of law in the state. Membership in the MSBA is voluntary. To become a member of the MSBA, an individual must pay annual dues; members must pay additional dues to join a particular section of the MSBA. ²

The MSBA has been exempt from the State's sales tax since 1969. In that year, an Assistant Attorney General, in an unpublished letter opinion, concluded that the MSBA was entitled to a Retail Sales Tax Exemption Certificate. He found that the MSBA's Articles of Incorporation established prima facie that the Association was a nonprofit charitable and educational organization under Article 81, § 326(i). The opinion noted that "all of the activities of the Association are focused upon the education of members of the Bar and that all meetings of the Association include Continuing Legal Education sessions to facilitate the above-stated purposes." The opinion further stated that "the purposes and activities of the Association are educational in nature ... and that the Association is therefore qualified under § 326(i) for an exemption from the Sales and Use Taxes." Shortly after the issuance of this opinion, the Comptroller issued an Exemption Certificate to the MSBA.

Despite this long-standing exemption, on December 30, 1981 the Comptroller assessed the MSBA for $7,824.96 in sales tax, plus appropriate penalty and interest, for the period December 2, 1977 through November 23, 1981. The MSBA made a timely application for revision, which, after an informal conference, was denied. The MSBA then filed an appeal, requesting that a formal hearing be held on the matter. Before the formal hearing was held, MSBA paid the Comptroller's office $1,289.95 to cover the tax on the sale of books, and that part of the assessment is no longer in dispute.

On September 30, 1982, a formal hearing was held before a hearing officer of the Comptroller's office with respect to the balance of $6,535.01 in tax, which represented the amount allegedly due on the purchase of office supplies and equipment. After receiving evidence and hearing arguments from both the Comptroller and the MSBA, the hearing officer found that the MSBA's primary purpose was not "educational" and that the "overwhelming majority of the Association's activities are inconsistent with the generally accepted meaning of the term." Consequently, the hearing officer ruled in favor of revoking the MSBA's exemption certificate and therefore denied the Association's request for an abatement of the assessment.

The MSBA appealed to the Maryland Tax Court, claiming that its exemption certificate was erroneously revoked. The sole issue before the Tax Court was whether the purchases of equipment and supplies by the MSBA during the assessment period were exempt from the Maryland sales tax by virtue of the MSBA's status as a nonprofit charitable or educational organization under § 326(i).

In support of its argument for exemption, the MSBA presented the testimony of William J. Smith, then Executive Director of MSBA, and Robert H. Dyer, Executive Director of the Maryland Institute for the Continuing Professional Education of Lawyers, Inc. (MICPEL). The MSBA also submitted into evidence its articles of incorporation, its sales tax exemption certificate, its annual budgets for the years 1977-78, 1978-79, and 1980-81, programs from its 1977 annual meeting, several MSBA pamphlets, a number of brochures from legal education seminars which the association co-sponsored with MICPEL, and the unpublished letter opinion of the Assistant Attorney General. To support its claim, the Comptroller presented the testimony of its auditor, Albert Laws, and introduced into evidence the auditor's work papers, the December 1981 assessment notice, the MSBA's 1981-82 budget, and a 1985 MICPEL report.

The parties agreed that the activities of the MSBA could be analyzed through a review of the organization's annual budget. The evidence revealed that the MSBA's operating budget is derived almost exclusively from membership dues and from fees for special events and services. The largest part of the MSBA's yearly expenditures, approximately 44%, is for administrative and salary expense required to support the separately budgeted activities of its 13 standing committees, 21 special committees, and 17 sections. ³ The remaining expenditures are principally allotted to the annual and mid-year meetings, the conference of Local Bar Presidents, the luncheons for new admittees to the Bar, the University of Maryland and University of Baltimore Law Reviews, the Bar Journal, and the Lawyers' Manual.

At the hearing, MSBA Executive Director Smith testified as to the charitable and educational nature of the special committees, standing committees, and sections. This testimony revealed that the 21 special committees are organized to perform work in a wide variety of areas, which included the Bicentennial Celebration, the Commemoration of the 200th Anniversary of the Court of Appeals, Environmental Law, Advocacy, Bench/Bar Liaison, Law Day, Citizen's Advisory, Judicial Selection, Editorial Advisory, Law and the Handicapped, Seminar on Ethics, Bar Insurance, Travel Program, Advertising, and Arbitration of Fee Disputes. Those special committees with the largest budgets included the Citizens Advisory Committee which sponsors a program designed to teach primary and secondary school students about the legal aspects of our society, the Law and the Handicapped Committee, which educates lawyers about the representation of handicapped persons and educates the handicapped as to their legal rights, the Seminar on Ethics, and the Arbitration of Fee Disputes Committee. The special committees with the smallest budgets include the Travel Program, Advertising, and Bar Insurance.

In addition to these special committees, 13 standing committees perform much of the MSBA's work. They consist of the Membership Committee, the Continuing Legal Education Committee, the Economics of Law Practice Committee, the Ethics Committee, the Budget and Finance Committee, the Laws Committee, the Legal Services Committee, the Long Range Planning Committee, the Judicial Appointments Committee, the Medico-Legal Problems Committee, the Program Committee, the Unauthorized Practice of Law Committee, and the Public Awareness Committee. The Membership, Budget and Finance, Program, and Long Range Planning Committees are involved with internal planning and administration. The committees with the largest budgets include the Economics of Law Practice Committee, the Ethics Committee, the Laws Committee, the Judicial Appointments Committee, and the Public Awareness Committee. The Economics of Law Practice Committee provides information to MSBA members on how to run their offices more economically. The Ethics Committee interprets ethical standards for lawyers. The Laws Committee performs a number of functions. It educates both the public and lawyers concerning legislation that could affect them. It identifies and tracks bills that affect the bar association and lawyers and in some instances may lobby for the passage or defeat of a particular piece of legislation. The Judicial Appointments Committee makes recommendations to judicial nominating commissions as to whom it considers qualified to serve as judges. The Public Awareness Committee works to educate the public about the legal profession and includes efforts to improve the public's view of attorneys.

The committees with the smallest budgets include the Legal Services Committee, the Medico-Legal Problems Committee, and the Continuing Legal Education Committee. The Legal Services Committee is involved with legal services to the poor and elderly; the Continuing Legal Education Committee is involved with continuing legal education to the bar.

Much of the controversy in this case centers upon the Continuing Legal Education Committee which receives a relatively small budget in comparison to the other committees and MSBA projects. Prior to 1975, this committee possessed a relatively large budget and was in charge of organizing and presenting the bulk of the legal education seminars available to the bar. In 1975, MICPEL was formed for the purpose of centralizing the administration of the continuing legal education programs of the University of Maryland Law School, the University of Baltimore Law School and the MSBA. At the hearing, the Comptroller argued that the MSBA transferred its educational function to MICPEL when it was...